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Are you into meme stocks or meme coins?
Or do you avoid both at all costs?
Maybe you are interested but hesitate to get involved?
Or perhaps you haven’t a single clue what ‘meme’ even means!
No problems then, a quick explanation.
A meme stock is a stock that has seen an increase in volume not because of the company’s performance, but rather because of hype on social media and online forums like Reddit.
Fact is that my own opinions on them and likely yours, makes no difference to the fact that both are attracting the lion’s share of hedging.
That’s borrowing on margin to the initiated!
And this last week we have seen some remarkably interesting behavior across both.
And it’s this behavior we need to focus on today.
I’ll explain today why you are witnessing a rare glimpse into the future.
It is the same type of behavior into and out of the most speculative instruments which will be part of the market peak later this decade.
And the best examples we have right now is the action in both crypto markets and so-called meme stocks like AMC Entertainment.
Let’s dive in and see what’s happening.
Regardless of whether you are actively involved or a bemused spectator.
What our Property Sharemarket Economics (PSE) indicators page on our website is saying about margin lending deserves serious attention.
There is no question in my mind you will want what I’m about to share with you today.
It’s all about the gamma.
We should start with AMC Entertainment. They own about 1000 cinemas across the US & internationally.
Now, you don’t need me to tell you a major casualty of the COVID lockdowns, both last year and currently, were cinemas. They need bums on seats. When everyone’s stuck at home, that’s not happening.
Now to the moniker; meme stock. Fact is, until recently it’s been a joke of a stock to own, look.
Source – Finviz
Now, it should be obvious where the interest in the stock began.
This of course is the work of WallStreetBets and fellow Reddit users who target undervalued and heavily shorted stocks and buying short-term call options (margin lending).
These call options are way out of the money, causing money makers who lend to them to buy shares in the stock as collateral.
Out of the money means the option has zero value.
Not only that, but the strike price of these same options is so far above the current stock price that they are extremely cheap to buy.
The strike price is the level at which the call option can buy the underlying stock at.
Much like another stock I wrote about a few months ago (GameStop) the results are all over the chart.
Market makers and short seller create a buying frenzy eating upon itself as buying begets even more buying.
Young teenagers using other people’s money via options can, and did, become 5-minute millionaires, at least on paper.
This creates a gamma nightmare for those who are writing these call options for these Reddit groups.
This happens when the stock price moves in the opposite direction their models predicted, hence they are forced to buy.
Now, there’s more than meets the eye here.
Groups like WallStreetBets have a grudge against institutional financial groups and are less interested in making money as they are hurting these groups bottom lines.
Hence, they ‘attack’ stocks these financial groups recommend their own members should short.
But for us today, I’d like to call your attention to what the professionals are saying about all this.
It speaks volumes to me.
From senior multiasset strategist at State Street Marija Veitmane:
“This meme mania basically tells me there is plenty of cheap money…Broader implications is what is happening with the market. The path of least resistance is for this money and cheap financing to be redeployed in financial markets or even spending and going into corporate profits.”
“Assets get more expensive, real assets, financial assets — that’s happening — until interest rates start going higher substantially, we will probably have appreciation in financial markets so that’s the conclusion we draw.”
Aha, there is our key.
Access to ultra-cheap financing via these call-options (just as one example) in a world of historic interest rate lows.
Add in the abundance of phone app-based trading accounts that offer zero commission (think Robinhood) and hundreds of bored teenagers can move markets.
Using US government stimulus checks most likely!
So, take this to its inevitable conclusion.
From head of asset allocation at Trea Asset Management Ricardo Gil:
“These jumps aren’t backed by any fundamental analysis; they are cracks that open in the system because of the excess of liquidity as investors look for stocks where they know there are forced buyers such as hedge funds. The problem will be if one of these situations translates into a systemic risk.”
Finally, from Charles-Henry Monchau, chief financial and chief investment officer at FlowBank.
“The world is awash with liquidity. And this leads to bubbles and extreme situations such as the one we are seeing now on these retail sentiment names. The meme stock phenomena are coming back with a vengeance…this could indeed create some volatility on the overall market.”
However, for every Yin there is a Yang, so they say.
For instance, the level of arbitrage has disappeared so quickly in Bitcoin futures that no-one prepared to take up the retail demand for long positions.
Liquidity in the form of hedging across the curve is vanishing.
It all signals harder times for market makers (like BKCoin Capital) who have notched outsize gains with simple arbitrage strategies that involve going short futures and long the spot.
Suffice to say, two examples of just how important the availability and access to cheap credit is, across almost any market you choose to research.
And it can create and sustain a market, yet by simply being withdrawn, it can also bring a market to a shuddering halt.
Now, here’s your takeaway.
Knowing this in advance could save you potentially millions!
Do you think having early warning of when this type of margin lending is signalling the absolutely peak of the stock market would be useful?
What would you do with that information?
And how would you access this?
See, the thing here I’m trying to draw your attention too is the outside effect easy and cheap liquidity does have on any market you please to look at.
Both on a market rocketing higher, and one shrivelling away due to the lack of it.
So as market participants its more important than ever to be following the money, literally!
And I’ve no doubt that as the 18.6-year Real Estate Cycle progresses to its inevitable peak and bust later in the decade, most of us will have used some sort of leveraged product to maximise our results.
When is the time to wind up this debt?
Exactly when should you be using it in the first place, in which assets and for how long?
I’d like to introduce you to something that may help you; it’s called the Boom Bust Bulletin.
It will teach you the history of the 18.6-year real estate cycle, why it repeats, and help guide you to the opportunities as they present, all at the right time.
Recall we live now in the golden age of debt.
It can both significantly boost the performance of your stock or property portfolio. And it can also easily lead to destruction of capital value of both too.
Future editions of the Boom Bust Bulletin will touch upon what our proprietary indicators are telling us right now, particularly around margin debt in the US and Australia.
Why? Because as our members have been made aware, these indicators are critical in foretelling the next downturn in markets.
As they have down for the last 25 years!
Again, don’t you think that kind of information would be of benefit to you?
Join us on this journey, get yourself educated and all for a few cups of coffees a year.
Incredible value.
Best wishes,
Darren J Wilson
and your Property Sharemarket Economics Team
P.S – Find us on Twitter under the username @PropertySharem1
P.S.S – Go to our Facebook Page and follow us for right up to date information on the 18.6-year Real Estate Cycle.